BOSTON ( TheStreet) -- U.S. stock mutual funds are forecast to set a new record for investor withdrawals in August as Americans recoil from the biggest equity-market slump in three years and the first-ever downgrade of Treasuries.The prediction, from analyst Kevin McDevitt at mutual-fund tracker Morningstar, comes after July's $22.9 billion in outflows, the most since the peak of the credit crisis in October 2008, when investors pulled $28 billion from U.S. stock funds. "With August off to a very rocky start, this trend is sure to continue with deeper outflows to come."
In previous stampedes out of U.S. stock funds, investors slowly returned, but McDevitt said it could be different this time because there have been a series of "structural shocks" to the financial industry that are not cyclical in nature, as in previous downturns that came with a bear market or a technology-stock bubble as seen early this decade. "The implications are serious" for the mutual fund industry, he said. And those same investors don't put much trust in U.S. money market funds either -- usually the safe place to park cash -- which are down $223 billion this year. They are opting instead for bank savings accounts or certificates of deposit, despite the paltry rate of interest they pay, because of the safety and liquidity. Still others are investing in U.S. Treasury and foreign bonds, while some with a higher tolerance for risk are investing in international equity funds. Those investors eschewing money market funds, once considered one of the safest havens in a period of volatility, likely remember the liquidity crisis in the fall of 2008. At the time, some money market funds struggled to maintain their $1 net asset value. The big winner this year has been taxable bond funds, which saw $102 billion in inflows through July, putting the sector on pace with last year's increase of $217 billion.
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